The Future of Energy: Shale, Bringing Energy Back to the West

By Jack Shaked

It seems like every day, an entirely new advancement or discovery is made in the energy sector. From solar to fusion to thorium, it is hard to determine what the future of energy will look like and what impacts these advances will have on the world. Over the next few weeks, The Future of Energy series will attempt to explore how new sources of energy work (or could work), the obstacles to their adoption, and their potential geopolitical impact.

Out of all the current “alternative” energy sources pursued today, shale gas and tight oil are the best developed and most widely-adopted. Shale is also the “oldest,” in that the extraction of natural gas and other shale hydrocarbons has technically been around for over a hundred years.

The recent “shale gas revolution,” has been enabled by a combination of technological advancements in the processes of horizontal drilling, hydraulic fracturing (“fracking”), and seismic imaging which, by making vast new reserves accessible and cheaper to exploit, has made shale gas commercially competitive. These technological advancements took decades and hundreds of millions of dollars in government subsidies and research to come to fruition. The development of the shale gas revolution provides a key lesson to be kept in mind while exploring alternative potential energies. The government must often play a large role in fostering the technological development (especially in the early stages) of any wholly new source of energy and that development will almost always be incremental in nature until reaching an ‘inflection point’ of exponential growth and lasting geopolitical impact.

It is important to note that despite the hype, the shale gas revolution is far from inevitable. Valid environmental concerns, uneven regulation, and other emerging energy technologies may prevent shale from ever reaching its full potential.

The strategic implications of this revolution however, from increased US energy independence, struggling petro-states, and a China that is more intimately engaged in the Middle East, have already begun to unfold.

Perhaps the most important result of the shale gas revolution is the bulk shift of hydrocarbon production from the Middle East to the Western Hemisphere, namely the United States, Canada, Mexico, and Brazil. By helping increase the proven global supply by about one trillion barrels since 1980, the shale gas revolution has completely changed the energy map. The United States is projected by the International Energy Agency to surpass Saudi Arabia as the top producer of oil by the mid-2020s, possibly becoming a net exporter by 2030. As Robert Manning puts it, the oil debate has been flipped from one of “peak oil” to one of whether or not we are approaching “peak demand.”

For the United States, this energy production boom has predictably lowered energy prices and led to a slow resurgence of manufacturing (especially in energy intensive industries). It has also slightly lowered carbon emissions (though US economic growth and the opportunity cost of not adopting cleaner alternatives makes its environmental benefit tenuous at best). Geopolitically, it has begun to provide the United States with a cushion of independence and maneuverability (e.g. sanctions on Iran) in its foreign policy. Decreasing reliance on energy from the Middle East removes one of the main strategic reasons for being entrenched in the region and the main card the United States’ ‘frenemies’ (e.g. Saudi Arabia) could use to pull it into their battles for regional influence. While it is still a global oil market and the United States has an interest in price stability, the burden for ensuring security in the Middle East, should (and will), shift to the emerging markets that have a rapidly rising stake in its oil. This should give the United States the space it needs to make a much desired pivot to the Asia-Pacific. As the current ISIS situation shows, whether the United States will be able to entirely disengage in the oft troubled Middle East is anyone’s guess.

The shale gas revolution doesn’t bode well for the Middle East. Production increases in the Western Hemisphere and elsewhere could lead to a relative decline in the Organization for Petroleum Exporting Countries’ (OPEC) ability to dictate the price of oil and lead to an economic decline of ‘petrol states’ everywhere (e.g. Iran and Russia). Higher US energy production will also take away the “oil” part of the traditional, “security for oil” US-Saudi relationship. If current trends of shale gas production continue and the two countries’ interests on sectarian conflicts continue to diverge, expect to see US-Saudi relations chill and OPEC to embrace Russia in an effort to shore up its influence. In regards to Israel, the implications of US disengagement would obviously not be good for it, but traditional associations to the only democracy in the region and US domestic politics will likely keep Israel a top priority for US policymakers. However, the rapidly growing and energy-hungry markets in the Asia Pacific do hold vast opportunities for the Middle East.

Barring a ‘game changer’ like fusion energy or, much likelier, methane hydrates (which Japan and China are pursuing) Asia’s stakes in the Middle East will only increase in parallel with its energy demands. Though Asia will mainly look to the Middle East for its energy, many US allies will likely be bolstered by US gas. The Japanese Ministry of Economy, Trade, and Industry projects that the United States will provide twenty percent of Japan’s future gas imports. This supply would strengthen the United States’ rebalancing to Asia with an ability to bolster allies’ energy security in the face of threats from an expanding China. Yet, it is worth noting that this shale revolution also provides an opportunity for cooperation with all Pacific powers, especially China. With Asian nations increasingly relying on Middle Eastern energy, the United States could make the case that security for vital shipping lanes in the region, such as the Gulf of Aden, should be more of a collective responsibility.

If the shale gas revolution continues on its current upward trajectory, it will be a strategic net positive for the United States and its allies, including Europe, which might not pursue its own reserves but could become the United States’ biggest market. It will put pressure on petrol states’ economies and will supplant OPEC’s geopolitical weight, especially Saudi Arabia, which will increasingly look to a growing Asia for energy markets.

Jack Shaked is a Fall 2014 intern with the Brent Scowcroft Center on International Security's Strategic Foresight Initiative. He has a keen interest in understanding the farreaching impacts of today's innovations and current events on foreign policy and strategic policymaking. He recently recieved his bachelor of the arts in politics from Pitzer College.